Time to Refinance America

Washington wants to put strict conditions on who will qualify for a refinance loan for fear of being accused of encouraging moral hazard where certain unworthy home owners benefit from the redesigned refinance program.

In a recently published "new" study by the Federal Reserve they confirmed what millions of American homeowners knew first hand. It’s what most professionals in the housing finance industry have known for over a year.

Namely, that millions of American homes are unable to be refinanced - despite historically low interest rates - due largely to the fact that many of these homes are either underwater (meaning the current loans balance exceeds the current property value) or the home's owners fail to qualify for refinance loans due to tighter credit standards. The study would suggest that at least 2 million American homes are eligible for refinance but for these conditions.

Despite this reality, Washington seems unable to come up with a solution. Prior efforts such as Home Affordable Refinance Program have failed. The failure is due to the fact that the eligibility criteria designed by regulators have been too narrowly defined to accommodate a housing market where values continue to decline and an economy that remains weak at best.

It’s possible to implement a meaningful refinance program by year-end that is simple to implement and rewards every American that remains current on their mortgage. This program poses little risk to encouraging moral hazard. Most importantly, it will inject billions of dollars of free cash flow into our struggling economy.

Mortgage borrowers current on their mortgage for the past 12 months and whose new payment would be at least $50 dollars per month less than their current payment qualify.

To be clear, this would apply to borrowers who are owner occupants and investors alike. Moreover, the program would apply to borrowers' with first and second mortgages as well. If the new payment is less than the combined old payments, they get rolled up and refinanced into a new loan under this program.